South African spot prices halt declines

An expected increase in Indian seaborne coal demand helped support South African spot prices this week, as the origin's competitive price advantage has boosted offtake from Indian port stocks in recent weeks.

NAR 6,000 kcal/kg fob Richards Bay (RB) spot prices ended five consecutive weeks of falls this week, rebounding by $2.78/t to $58.96/t.

Further ahead, two API 4 index-linked deals were concluded. A 50,000 t/month calendar 2020 loading deal changed hands at a 70¢/t discount to API 4 on 2 September, followed by a 50,000 t/month first-quarter 2020 trade at an 80¢/t discount to the benchmark the following day.

API 4 first quarter 2020 and calendar 2020 swaps settled at $63.80/t and $67.85/t, respectively, on 6 September.

Stockpiles at the Richards Bay Coal Terminal (RBCT) rose by about 650,000t on the week to more than 4.6mn t — the highest level since February — on reduced vessel loadings and steady rail deliveries to the port, market participants said.

August loadings from the terminal fell to about 4.8mn t, shipping data show, from less than 5mn t a year earlier and a 2015-17 August average of 5.8mn t.

But vessel loadings scheduled for the first seven days of this month indicate an average load rate of just 77,100 t/d, down from 156,300 t/d in August.

Indian buying interest in prompt-loading South African cargoes was quiet this week, although recent sales from Indian port stocks could revive demand for seaborne supply in the near term.

Sellers traded South African NAR 4,800 kcal/kg supplies from some east coast port stocks at about $50/t cfr to buyers, market participants said. And some power producers have procured NAR 4,800 kcal/kg South African supply from port inventories.

But not all utilities can consume South African coal because of its lower-volatile matter, so are likely opting to blend this origin with higher-volatile-matter domestic supply or Indonesian seaborne coal.

Some utilities have been interested in this grade given its increasing cost advantage over spot Indonesian GAR 5,000 kcal/kg supplies, which were assessed at $46.11/t fob this week or around $55.30/t on an India-landed basis, Argus calculates.

Argus assessed the NAR 4,800 kcal/kg fob RB market at a $12.50/t discount to API 4 front month swaps this week, or $38.97/t.

This would value India-landed NAR 4,800 kcal/kg coal at around $52.70/t, up to a $2.70/t premium to recent stock-and-sale trades from Indian inventories and a $2.60/t discount to Indonesian GAR 5,000 kcal/kg supplies.

Over the previous three weeks, India-delivered, including taxes and railing, NAR 4,800 kcal/kg South African spot cargoes were priced at about a $5.20/t discount to Indonesian GAR 5,000 kcal/kg supplies. This was wider than the $1/t average discount in July, but still narrow compared with the average $7.40/t discount over the first half of this year, under Argus estimates.

But when including taxes, rail freight and energy-adjusted to NAR 5,500 kcal/kg, the lower grade South African coal was still at a premium of around $1.50/t to its NAR 5,500 kcal/kg counterpart. This suggests that future Indian spot demand for seaborne NAR 4,800 kcal/kg cargoes could be limited given its lack of an energy-adjusted price advantage.

Even amid the recent stock-and-sale interest from buyers, stockpiles at some Indian ports remain high. Coal inventories at Gangavaram port rose to 4.15mn t at the end of August, of which thermal coal accounted for 3.6mn t, data from shipbroker Interocean show. By contrast, overall coal stockpiles were 3.65mn t in early September 2018 and averaged 2.84mn t at month's end in January-July.

Gangavaram's thermal coal arrivals are predominately composed of South African supplies, shipping data show, with one market participant estimating that South African tonnes could account for roughly 2mn t the port's total coal inventories.

Gangavaram imported 9.89mn t of thermal coal in January-August, climbing from 8.2mn t a year earlier, provisional data from e-commerce firm Mjunction show.

But coal evacuation from ports has slowed on lower industrial activity, with output from some sponge iron firms down by 50-60pc as a result of lower margins, market participants said.

While industrial activity typically drops off during the June-September monsoon rains, funding challenges and cash shortages could continue to weigh on industrial output and associated fuel demand. But some market participants anticipate stronger Indian buying interest for prompt cargoes from the second half of September as the monsoon season draws to a close and amid expectations that government spending on infrastructure could pick up.

European spot markets gain

Meanwhile, European-delivered spot prices surged on the week as November entered the assessment window.

Argus assessed the weekly NAR 6,000 kcal/kg cif Amsterdam-Rotterdam-Antwerp (ARA) market at $56.88/t, climbing by $8.25/t on the week.

Spot prices rose despite sluggish coal burn in August. Total coal-fired generation across Germany, Spain, the UK and France dropped by 6.7TWh to 3.6TWh in August, a fall of nearly a third of what it was during the same period last year.

Gas-fired generation rose by 4.6TWh on the year to 21.3TWh in the same four countries as the fuel retained a significant cost advantage for thermal generation. This increased its share of total power generation and thermal output to 19pc and 64pc, respectively, from 14pc and 43pc last year.

The average front-month clean dark spread (CDS) for German 40pc-efficient coal-fired plants recovered slightly but remained negative at minus 76¢/MWh in August, from minus €1.65/MWh in July. And the fourth-quarter 2019 CDS stood at €2.83/MWh, well down compared with €9.93/MWh during the same period a year ago.

Forward prices suggest that coal-fired plants may be able to compete with lower-efficiency gas-fired plants in the fourth quarter of this year, with the expected rise in seasonal demand helping support winter prices at the German NCG gas hub at a wide premium to the spot market.